Oracle boosting business with $5.3 billion purchase of Micros Systems

By Steve Johnson sjohnson@mercurynews.com

Posted:
06/23/2014 04:55:28 PM PDT

Updated:
06/23/2014 05:21:27 PM PDT

REDWOOD CITY -- In its biggest deal in four years, tech giant Oracle moved to shore up its stagnant sales and reassure investors by announcing plans to buy hospitality and retail services company Micros Systems for $5.3 billion.

Yet it remains unclear how much the transaction will help Oracle bolster its so-called cloud, or Internet-based, products, widely regarded as key to the Redwood City company's future. To augment its software and growing computer hardware business, Oracle has snapped up nearly 100 companies over the last decade, including Sun Microsystems, which it bought for $7.4 billion in 2010. But while many of its recent acquisitions were Internet-based, the cloud is a small part of Micros' business.

And the deal comes as Oracle has come under pressure to keep growing, especially after its stock price took a big hit last week when its earnings report failed to meet analysts' expectations.

Daniel Ives of FBR Capital Markets said Oracle will need to make more such acquisitions to rev up its revenues.

"We view this morning's Micros deal as just the start of what we expect will be a surge of M&A activity for Oracle over the coming year," Ives said, "as it is clear to us that the company needs to quickly put more growth fuel in its engine."

Reaction to Monday's deal was mixed. Noting that only 7 percent of Micros' 2013 sales were from cloud products, Raymond James analyst Michael Turits concluded that the proposed purchase -- expected to be completed later this year -- "looks like a less aggressive move into the cloud than we would have liked."

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"This is a good deal," countered Global Equities Research analyst Trip Chowdhry. "It will make Oracle stronger." While characterizing Micros as a company that's under intense competitive pressure, he said Oracle is especially good at milking profit from such acquisitions, adding that "they are like technology surgeons."

Founded in 1977 and based in Columbia, Maryland, Micros -- which has about 6,600 employees and reported sales of $1.27 billion last year -- makes software and hardware for the hospitality industry and various retailers.

The company's most recent annual report said its products are used in more than 567,000 hotels, casinos, restaurants, cruise ships, convenience stores and other businesses in more than 180 countries. Those customers range from IHOP, Hooters, Burger King and Starbucks to the Hyatt and Marriott hotel chains, Harrah's casinos and Fenway Park baseball stadium in Boston.

"We anticipate delivering compelling advantages to companies within the hospitality and retail industries with the acquisition of Micros," Oracle President Mark Hurd said in a news release.

Oracle officials didn't disclose whether the deal would result in any layoffs at the two companies.

Boasting 120,000 employees worldwide, Oracle is Silicon Valley's sixth-biggest company in revenue, earning a profit of nearly $11 billion on sales of $38 billion in fiscal 2014. But its business growth has slowed considerably over the past three years, raising concerns among investors and Wall Street experts.

The $5.3 billion deal -- which actually will cost Oracle $4.6 billion because it is acquiring Micros' cash -- had been rumored for days and analysts generally have been warm to the purchase. Noting that the hospitality market is lucrative, several said Micros should benefit Oracle, which traditionally has provided business software but increasingly has offered computer server and storage equipment, a niche it entered through Sun Microsystems' products.

Following the news, Oracle's shares rose 28 cents -- less than 1 percent — to $41.10 at the official close of trading.

Michael Fauschette, an industry analyst with the market intelligence firm International Data Corp., called the proposed purchase "a solid expansion of an already strong retail offering for Oracle."

Although Oracle will use about 12 percent of its nearly $39 billion in cash and investments to finance the purchase, Wells Fargo analyst Jason Maynard agreed in a note to his clients that "this deal makes strategic sense."

Oracle
Founded: 1977
Headquarters: Redwood City
Most recent annual sales: $38.2 billion
Most recent annual profit: $10.9 billion
What it makes: Business software and computer servers and storage equipment
Number of employees: about 120,000